Is a Soundstage a Sound Investment?

The deal for a film studio at the old Ryerson steel plant isn’t a sure thing—and neither are the benefits.

It's been a few years since the Ryerson steel plant on the west side has really hummed, but there's been a Hollywood buzz around it since New Line Cinema's A Nightmare on Elm Street set up shop there for two months last summer. And early this month came the intoxicating word that the mammoth, mostly empty factory campus was being purchased by investors and would become a film studio by January.

And why not? The century-old Ryerson spread—nine buildings on more than 48 acres, representing more than a million square feet of wide-open interior space with ceilings topping out at 50 feet and higher—is practically a dead ringer for a Hollywood lot, minus the palm trees and year-round sunshine. The largest North American soundstage outside of Los Angeles would go nicely with the 30 percent subsidy Illinois offers film and video production companies on local expenditures and labor. But reports that it's a done deal, with construction already under way and the investors set to spend nearly $80 million (including the purchase price of about $20 million), turned out to be premature.

This week the deal was still in the discussion stage, and the Canadian investor, Toronto-based Cinespace Film Studios, was looking to our desperately cash-strapped city and state governments for assistance over and above the $5 million grant the Illinois legislature has already approved. Cinespace owner Nick Mirkopoulos (whose Chicago partners are members of his extended family, according to his nephew, real estate broker Alex Pissios) told PerformInk's Carrie Kaufman that he's looking for government grants to cover 40 to 50 percent of the project cost. According to Kaufman's report, Mirkopoulos wants a more level playing field with Toronto, which offers generous subsidies.

Ruth Ratny's online newsletter Reel Chicago reported that Cinespace's studios in Toronto are "thriving," which raises the question of why—especially given those bountiful Canadian subsidies—Cinespace would bother to look our way. I wanted to put that question to Mirkopoulos, but he didn't return calls. His brother, Cinespace president Steve Mirkopoulos, would say only that the deal is "real" and discussions are ongoing.

A couple of insults Cinespace recently suffered in its hometown might be factors. The Mirkopoulos family got into the studio facilities business at an opportune moment, when Canada launched the film subsidies that sent moviemakers north, helping to create the "runaway production" phenomenon that California's still battling. Cinespace hosted a lot of films—including, much to the Windy City's chagrin, Rob Marshall's Chicago (2002)—and expanded to four separate spaces. But in 2007, on only two months' notice, the economic development arm of the city of Toronto booted Cinespace from a 140,000-square-foot city-owned waterfront facility the company had operated for 12 years. Nick Mirkopoulos lamented to a sympathetic Toronto Star columnist that he'd invested $11 million in the building, and an online petition asking the city to give Cinespace at least 18 months to move drew more than 5,000 signatures—but to no avail.

Then, last spring, Toronto came to the rescue of Filmport, a big new movie studio complex, buying an estimated 20 percent stake in it for undisclosed millions of dollars. Built at the city's urging for $65 million and completed in 2008, Filmport had yet to attract any major production and was struggling to stay afloat. Mirkopoulos predicted that before long city agencies would be directing business "away from our operations and towards the film studio in which the city has a direct investment. We are now assessing how much longer we will be able to operate in this very toxic business environment."

The biggest factor in Cinespace's courtship with Chicago, though, is likely neither Toronto's politics nor its film industry rivalries but the relative strength of Canadian currency and weakness of the American dollar. In the last couple years, for the first time in recent history, the Canadian dollar has risen roughly to parity with the U.S. greenback. For most of the previous 15 years, the loonie was worth no more than 80 American cents, which plagued gave U.S. filmmakers with a 20 percent (or greater) boost in their budgets before they'd even factored in subsidies. Toronto—which now offers a 25 percent subsidy on top of the 16 percent national government rebate on labor—has a reported resident movie industry production workforce of 25,000 people. In 2008, between the global economic slowdown, a bump up in state subsidies in the U.S., and the declining value of the American dollar, the city reported a 25 percent drop in film production spending—leaving a lot of those workers wondering where their next gig was coming from.

A seldom-discussed factor in all this concerns the kinds of jobs that film production subsidies—usually masquerading as "tax credits"—support. They're temporary gigs for a workforce that suffers chronically high levels of unemployment.

Cornell University professor Susan Christopherson has been studying the film subsidies now offered by more than 40 U.S. states for a couple decades and notes in a recent report—the short version of a paper to be published in the winter 2010 edition of the Journal of Planning Education and Research—that "the conundrum of 'crew depth' has dogged the states trying to compete for productions for 35 years." Illinois, for example, attracted a record $155 million in film industry business in 2007 and racked up 26,500 production "hires," according to the state film office. (In 2008, film revenue slipped to $141 million.) But what does that mean? It means having "enough skilled crew unemployed and available" at any given time to do work that typically ranges from a couple days of hairdressing to a couple weeks of carpentry. No wonder government film offices have largely stopped talking about creating jobs.

Christopherson writes that while states clamber over one another in a mad rush to supply ever more generous subsidies for a nomadic industry, "the fiscal impacts of the subsidies are overwhelmingly negative." More tax money is paid out than comes back to the state. And as for public investment in studios like the one proposed for the Ryerson site, it's "a high-risk proposition in an industry organized around short-term projects."

In general, Christopherson told me, state investment in studios to be leased by subsidized productions leads to a situation in which subsidies are needed "in perpetuity" to cover the facility's overhead. If that's what the citizens of Illinois want to do, OK, she said. "But it's important to be realistic about what's going to happen. Essentially you're buying into a permanent subsidy for the major motion picture companies."